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My wife and I have run an SMSF since 1985. The fund is now in pension mode. For a variety of reasons we decided to liquidate the assets within the SMSF and roll the proceeds into an industry super fund. We opened accounts with an industry super fund on 5/07/2017 with approximately 70% of the funds in the SMSF on 30/06/2017, with the balance to be rolled over before 30/06/2018. We have made provision for our pension payments for the current year based on the value of the fund on 1/07/2017.The industry fund has told us that we need to withdraw a minimum pension for each of us (5% of the sum invested with them) in the current financial year. This would result in us having to withdraw 5% each from our SMSF as well as from the industry fund. This would mean that we would be withdrawing 10% of our total funds in superannuation in this financial year. My understanding is that minimum pension withdrawals for any year are based on account balances on 1 July of that financial year and therefore we would not have to draw a pension from our industry super fund until after 1/07/2018. Would like to know whether my interpretation of the rules is correct.
A: Thanks for the question.
Unless the pension occurs in the last month of the year (June), the pension payment is pro-rated so that the minimum amount for the first year is worked out proportionately to the number of days remaining in the financial year, including the start day. That is, for a pension commencing on 5 July, the payment will be based on the account balance multiplied by 5% multiplied by 361 and divided by 365 (Account balance x 5% x 361/365).
The pension balance for minimum amount purposes will be the amount that you have in the industry fund on 5 July. Your Industry Fund is correct.
With your SMSF, you would probably do a partial commutation of your pension and then commence a new pension, and re-calculate the minimum pension payment based on the 30%. For the very brief period where 100% was held in the SMSF, you would base the minimum account on the full amount for those number of days.
In total, you should only need to withdraw a minimum of 5%.
Hope this helps.
